By Boda .V .
V Santosh Kumar
Presented by Boda.V.V.Santosh Kumar, RollNo.51 , PGDM-FM, Under the guidance of MR.G. Uma Maheswara Rao (senior manager) & Mr. Subbarao Peteti (EX-ED of Punjab & Sind bank and Professor of ITM-IFM)
Objective of the study
To understand Micro, Small and Medium enterprises. To study the Credit Appraisal for working capital finance of MSMEs. To understand the role of banks in the financing of MSMEs. To understand the importance of products offered by the bank for meeting the needs of MSMEs.
To understand the rationale behind various guidelines observed by Andhra Bank.
OVERVIEW ABOUT MSME
Introduction MSME Development Act 2006 Products Offered by the Bank to MSMEs Two types of Enterprises Manufacturing Service
Investment in Plant and Machinery/equipment (Excluding Land and Buildings)
Manufacturing Enterprises Service Enterprises
Micro Small
Upto Rs.25lakhs
Upto Rs.10 lakhs
More than Rs. 25lakhs & up More than Rs.10lakhs to 5crores & up to 2crores
Medium
More than Rs.5crores & up to Rs.10crores
More than Rs.2crores & up to Rs.5crores
CASE STUDY
Name of the Unit Line of Activity : XYZ Brands Ltd. : Plain Gold Jewellery trading & manufactured on Job basis. : Diamonds and Jewellery
Name of the Product
Facility
Present Preference Security
: Open cash credit
: Renewal of OCC limits from 20cr to 45cr. : Hypothecation of stocks, book debts on Pari-passu basis with member banks for Consortium.
Assessment of Limits
For Open Cash Credit Methods
Turn Over method Inventory method MPBF system Cash Budget system
Working Capital Details
Current Assets 31-3-11 Cash and Bank balance 3.59 Fixed deposits with bank 20.20 Receivables 231.96 Finished Goods 87.00 Advances recoverable 9.53 Advances to Income tax 13.73 Other current assets 0.08 Total Current Assets 366.09 Current Liabilities Short term Borrowings (From Bank) Sundry Creditors Advances Provision for Taxes Other statutory liabilities Other current Liabilities Total Current Liabilities Rs.in.Crores 31-3-11 46.64 197.24 0.54 16.99 1.37 0.36 263.14
Net Working Capital : 366.09 263.14 = 102.95 Working Capital Gap : Current Assets Current Liabilities(Excl Bank Borrowings) Working Capital Gap : 366.09 216.5 = 149.59 Current Ratio : 366.09/263.14 = 1.39
Assessment of Working Capital Requirements under MPBF
Rs. In Crores
Particulars
Total Current Liabilities Total Current Assets (-)Excluding Exports Receivables Actual Current Assets Minimum Stipulated NWC (A) (@ 25% of C.A Excl Exports Receivables) Actual NWC (C.A C.L) (B) Working Capital Gap (C) (D) item (C - A) (E) item (C B) (F) from the above two items which ever is low
31.03.2011
263.14 366.09 366.09 91.52 102.95 149.59 58.07 46.64
46.64
Financial Indicators
(Rs.in crores)
Particulars 31-3-2009 (Audited) 615.26 2.62 2.78 1.65 4.79 80.52 31-3-2010 (Audited) 912.20 8.05 2.47 1.54 4.79 88.14 31-3-2011 (Audited) 1341.10 22.07 2.21 1.39 4.60 102.95
Net Sales PAT Fixed Assets Current Ratio TOL/TNW Actual Net Working Capital EPS(Rs.5 as on 31.3.2011)
3.14
9.64
13.21
Credit Risk Assessment
CRS for Fund Based Limits of Rs.5.00lacs & above but less than Rs.50lacs. CRAS for Borrowal accounts with exposures of Rs.50.00lacs & above and upto Rs.5.00crores. CRRM for Borrowal Accounts with exposures of above Rs.5.00 crores. A separate CRRM Rating model for MSME borrowers with exposures of above RS.5.00crores and above.
Risk Rating Scale Under CRRM
Marks Secured 5.40 to 6.00 (90% & Above) 4.90 to 5.39 (80% to 90%) 4.20 to 4.89 (70% to 80%) 3.60 to 4.19 (60% to 70%) 3.00 to 3.59 (50% to 60%) 2.40 to 2.99 (40% to 50%) Credit Rating A++ A+ Description Exceptionally high position of strength. A high degree of strength among the peers. A moderate degree of strength A moderate strength with stable out look. A moderate strength with marginal negative out look. Weakness on a parameter to comparison peers. Unstable out look
A B++ B+
Spread Applicable Under CRRM
Rating A++ A+ A B++ B+ B C Crediting Rating : B++ Applicable Spread -1.00 -0.50 -0.50 NIL 0.50 +1.00 +1.00
Finding of the Study
The credit risk assessment of XYZ Ltd has resulted in grading the unit as B++, which implies that the unit is moderate and is capable of repaying the loan amount. The XYZ Company is eligible for the credit limit up to Rs.46.64crores so that the bank is enhancing their limit from 20crores to 45 crores based on the MPBF method.
THANK YOU
